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What Small Business Owners Need to Know About Non-Disclosure Agreements

One of the most important parts of owning a business is forming beneficial relationships with other entrepreneurs and businesses. In an ideal world, these relationships could be casual, but handshake agreements are not always honored. Informal business agreements can quickly go south and result in damage to your business’s bottom line. Business agreements involving another party should be formalized in writing. One such agreement is a non-disclosure agreement, or NDA. Non-disclosure agreements are often essential to protecting a company’s professional interests and continued success.

How Does a Non-Disclosure Agreement Work?

Non-disclosure agreements are a type of confidentiality agreement used to prevent sensitive company information from being shared with other parties. An NDA is a legally binding document which can be used in a variety of situations, most often during proposed or pending business transactions. A company may choose to use an NDA during the sale or purchase of a business, a merger, or during any other conversation in which privileged information is being shared. When discussing a possible merger, for example, the other party will learn information about your business which you may not want shared with anyone else. Allowing news of the merger to reach other businesses or even the press may not be in your best interest. In this example, an NDA can be used to ensure that the other party does not divulge company information to others.

The Two Main Types of Non-Disclosure Agreements

The most common types of non-disclosure agreement are one-way agreements and mutual agreements. A one-way NDA is also called a unilateral NDA. As the name implies, one-way NDAs only bind one of the parties to confidentiality. A unilateral NDA may be useful in preventing potential investors from revealing your business’s information to other people or companies. If you use a one-way NDA in this scenario, you do not have a reciprocating requirement to keep the potential investors’ information confidential. A mutual NDA, on the other hand, applies confidentiality requirements to both parties in a business transaction. A mutual NDA should be used when dissemination of either party’s information could adversely impact the business or the industry. Companies discussing the possibility of a merger most often use a mutual NDA.

Contact a DuPage County, Illinois Business Law Attorney

The Wheaton business lawyers at Stock, Carlson, Oldfield and McGrath LLC, have experience helping clients create formal contracts like non-disclosure agreements and offer many other business law services as well. Schedule a consultation with our law firm by calling 630-665-2500 today.